The S&P 500 plunged through its 50-day moving average Wednesday, falling nearly 3% in very heavy volume. But several growth stocks held up relatively well during Wednesday’s sell-off, including Palantir Technologies (PLTR) and a few other earnings powerhouses in the IBD 50.
Headed into Wednesday’s bloodbath, sparked by hawkish comments from Federal Reserve Chair Jerome Powell, investors cheered an earnings and revenue beat from Jabil (JBL) as well as its strong revenue guidance. The stock came off highs with the broad market Wednesday, but shares still rallied 7%.
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Meanwhile, Wall Street frowned on results from Micron Technology (MU), which reported another quarter of strong top-line growth but guided revenue for the February-ended quarter well below expectations. Micron got turned away at its 200-day moving average during Wednesday’s sell-off and gapped down sharply Thursday.
The earnings calendar is virtually empty between now and the end of the year, but several mainstays in the IBD 50 will be reporting over the next several weeks with their growth stories still very much intact.
Palantir Stock Ramps Higher
Palantir has enjoyed plenty of positive headline flow lately. The data analytics firm was recently added to the S&P 500. It’s also set to join the Nasdaq 100 index on Monday. Palantir shares held up relatively well during Wednesday’s market rout. On the surface, a 3.9% decline in higher volume didn’t look good at all. But Palantir held above its 21-day exponential moving average.
Revenue growth has accelerated for five quarters in a row at Palantir. Top-line growth is expected to slow slightly in Q4 but still rise an impressive 28% to $778.2 million, according to FactSet. With the stock market under some pressure, Palantir stock continues to trade tightly near highs. Earnings will be out in early February.
Palantir still gets a lot of revenue from the U.S. military and government agencies. The company now aims to use generative artificial intelligence to spur growth in commercial markets, including health care, energy and manufacturing.
In a letter to shareholders, CEO Alex Karp said: “The growth of our business is accelerating, and our financial performance is exceeding expectations as we meet an unwavering demand for the most advanced artificial intelligence technologies from our U.S. government and commercial customers.”
Watching Toast, Robinhood, DUOL
After an earnings breakout in November, Toast (TOST) is testing its 10-week moving average amid robust growth in recent quarters and bright growth prospects. The company should produce its first annual profit this year of 57 cents a share, with growth ramping up in 2026, up 35%.
Toast operates a cloud-based restaurant management system that basically helps restaurants run as efficiently as possible. For the December-ended quarter, the consensus estimate is for adjusted profit of 17 cents a share, with revenue up 26% to just over $1.3 billion. Last year, Toast reported fiscal Q3 results in mid-February.
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Elsewhere, Robinhood Markets (HOOD) is still holding comfortably above its 10-week moving average. But after a major accumulation phase — characterized by several higher-volume gains since early November — Robinhood lost support at its 21-day line Wednesday and could be ready to test its 10-week line.
Robinhood also just turned profitable in Q4 of 2023. The company offers a mobile app for commission-free trading of stocks, ETFs and cryptocurrency. Q4 profit is expected to soar 848% to 28 cents a share. In Q3, revenue growth slowed slightly. But growth should ramp back up in Q4, surging 69% to $807.1 million. Robinhood’s Q4 results will be out in mid-February.
Finally, Duolingo (DUOL) has been another standout performer in the IBD 50, with shares up 48% year to date. Duolingo has seen steady demand for its language-learning app. For the September-ended quarter, metrics were strong across the board, with adjusted profit up 600% to 49 cents a share. Revenue increased 40% to $192.6 million, continuing a string of 40%-plus revenue gains for several quarters in a row.
Paid subscribers came in at 8.6 million at the end of Q3, up 47% year over year. Daily active users were 37.2 million, up 54%. Results from Duolingo will be released in late February.
Options Trading Strategy
Palantir, Toast, Robinhood and Duolingo could make sense for call-option trades as the earnings dates approach.
A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the option trading strategy works:
First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Others might’ve broken out already and are getting support at their 10-week lines for the first time. And a few might be trading tightly near highs and are refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.
A call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified level, known as the strike price.
Once you’ve identified a bullish setup in the earnings calendar, check strike prices with your online trading platform, or at Cboe.com. Also, make sure the option is liquid with a relatively tight spread between the bid and ask.
Look for a strike price just above the underlying stock price — that’s out of the money — and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.
Choose an expiration date that fits your risk objective. But keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.
Follow Ken Shreve on X/Twitter @IBD_KShreve for more stock market analysis and insight.
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